NABE Expects Low 2009 Growth

The National Association for Business Economics (NABE) has turned decidedly more bearish on the economy in its latest press release on 17 November 2008:

"Business economists became decidedly more negative on the economic outlook for the next several quarters as a result of the intensification of credit market stresses and evidence of spillover to the real economy,” said NABE President Chris Varvares, president, Macroeconomic Advisers. “Following a small contraction in the third quarter of this year, the NABE forecasters expect real GDP to decline at a 2.6% rate in the fourth quarter, implying growth of just 0.2% in 2008.  With the recession continuing into 2009, GDP growth next year is expected to be a meager 0.7%. This would be the slowest growth over a two-year period since the early 1980s. The unemployment rate is forecast to rise to 7.5% by the end of next year. Inflation is expected to moderate, as economic slack builds and as oil prices are forecast to remain relatively contained."

Highlights of their conclusions are:

• The NABE panel dramatically trimmed growth expectations for both the remainder of this year and 2009.
• A dimmer outlook for consumer spending accounted for most of the downward revisions to the overall economic outlook, reflecting a worse outlook for household wealth and income. For example, the projected value for the S&P 500 index at the end of 2009 was lowered 17%
• 96% of the NABE panelists believe that a recession has begun. Half of the panel estimates that the recession started in the fourth quarter of 2007 or in the first quarter of 2008
• Just over 60% of the NABE respondents expect that the depth of the recession should be relatively contained, with a peak-to-trough decline in real GDP of less than 1.5%, with the balance expecting a harsher contraction.
• The jobless rate is expected to rise to 7.5% by year-end, 2009
• Lower inflation is predicted to coincide with increased economic slack.

This new opinion from NABE is more negative than previous forecasts this year.

February 2008:

The NABE forecast reflects the expectation the economy will grow only sluggishly or actually contract from January through June (2008). Then it is seen starting to expand more strongly in the second half of the year. Helping accomplish that is a $168 billion federal aid plan, with its rebate checks for millions of families, and aggressive interest rate cuts from the Fed. The panel of 47 top forecasters thinks “any recession, if it occurs, will be short and shallow,” Hughes-Cromwick said.

May 2008:

The worst of the painful housing slump and the credit crunch might come to an end this year. The economy will weaken further and unemployment will rise. That is the latest outlook from forecasters in a survey released Monday by the National Association for Business Economics, also known by its acronym NABE. It will take time for any rays of light to poke through the economic clouds, though. A growing number of economists believe the country is on the brink of a recession or in one already, dragged down by all the problems in housing, credit and financial markets. Now 56 percent of the economists think the economy has started or will enter a recession this year. That’s up from 45 percent in a survey in February. If there is a recession, it probably will be short and shallow, economists said. Forecasters downgraded their projections for economic growth. They now predict the economy, which grew by 2.2 percent last year, will slow to 1.4 percent this year. That’s lower than the 1.8 percent growth projected in February. If the new figure proves correct, it would mark the weakest growth since the last recession in 2001.

July 2008:

“Respondents to the July NABE Industry Survey were more varied than in the decidedly downbeat April survey about recent results and the next few quarters, but they were far from ebullient,” said Ken Simonson, Chief Economist, Associated General Contractors of America. “More firms reported higher sales, but also higher materials costs and lower profits, in the second quarter than in the first quarter. Respondents were evenly split between those expecting the economy to grow by more than 1% or less in the second half of the year; only 10% expect the economy to shrink between now and December. Yet, nearly half said they had become more pessimistic than in April about the year as a whole. A record 75% paid more for materials last quarter and expect to pay more this quarter, as well. Hiring plans for the next six months are cautious, although slightly more firms plan to add jobs than cut them. Capital spending plans were nearly unchanged from April, with more firms planning increases than cuts in capital spending. Most firms expected a continued housing slowdown but fewer expect it to be substantial. More respondents than in the past two surveys said tighter credit market conditions have affected their business, negatively for the most part.”

October 2008:

Respondents to the October survey were significantly more pessimistic about the macroeconomic outlook than they were in the July survey. A full 38% of respondents expect U.S. real GDP to be lower in 2009 than in 2008, and 79% expect growth of less than 1%. Only one respondent expects growth of more than 3% in 2009. Ninety percent of survey panelists said their forecast for 2009 became more pessimistic between July and October, compared to only 2% who said they became more optimistic. Thirty-eight percent became significantly more pessimistic, reflecting the deterioration in financial markets that occurred in September and October.

Conclusion

Economists are not able to accurately predict economic conditions six months in advance. Long term economic forecasts are educated guesses. My take is that this particular recession is unpredictable.

Disclosures: none